he Mastery Of Self
We do everything for a reason. The reason behind any act is, for the most part, unconscious. If we want to change a behaviour we need to identify the reason, the underlying objective, and examine it. We need to examine it to determine whether this objective, this assumption, supports us in what we want to do now.
Most of the beliefs, or rules, that govern our behaviour now, were formed in early childhood. They have become predominantly unconscious beliefs and their effect is to dictate the way we respond. Most of these beliefs continue to support us well, but some have long outgrown their value.
My baby son Arthur, does not yet know that touching a hot stove is painful. At some point he will burn himself and he will start to form a set of beliefs about hot things that will, by governing his behaviour, protect him from getting burnt. He won't necessarily remember these early experiences with heat, but his new beliefs will continue to guide him for the rest of his life.
When it comes to trading, most of what we have learnt to date and the beliefs that we have formed about success are inappropriate.
When we are trading we need to be:
Quick to cut a loss
Flexible to the ever-changing flow of information
Take the lead from the market rather than try to control it
Comfortable with uncertainty and risk
What are we taught about success?
Not to be a quitter
To be decisive, not fickle
To take charge/control
To dictate
To stamp out uncertainty
It is not difficult to see that what we believe about success in all other areas of life will work against us as traders. Lets look at some particular behaviours in trading.
Not cutting losses, what is the likely thinking that would result in this behaviour?
Losing is bad (If I lose then I am a loser)
Being wrong is bad (we all learn this at school!)
To take charge/control
I want to be right all the time i.e. perfectionist
And snatching profits:
Fear of losing what we have (losing is bad again)
Need to feel good (I am not good enough)
Ultimately I thing we struggle as traders because we want and need to feel good about ourselves and we are looking to the market for this affirmation. We are reluctant to take a loss because we think a loss is bad and that it underlines our fear that we are bad (a loser). We snatch profits because we are desperate for information that supports the idea that we are good.
If I have an unshakeable belief that I am good, then I would not look to the market for approval; we only look for something we think we don't have. To resolve this problem we need to simultaneously work on and build the belief that we are already perfect and we need to shift our neediness away from the market and seek affirmation from another source.
My Exit Beliefs In part one of this article, we considered a few questions: Should we use a tight stop loss to cut any losses quickly, or a wide stop loss to allow some room to move? How quickly should we move the stop loss to breakeven ? Should we take profits at a target, or should we let the profits run, perhaps trailing a stop behind the price? In attempting to answer these questions we looked at a number of charts, we chose entry criteria, and then looked at possible options for the exit. And this is what we discovered: Firstly, in each case, the profit or loss taken out of the trade was more a result of our chosen stop and exit method, not our entry. For the same entry, there were numerous possible exits, some profitable, some breakeven and some at a loss. And secondly, we cannot know, except with hindsight, what will be the most profitable exit strategy for that particular trade. In other words - the exit is more important than the entry. The exit has more bearing on w...
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